The International Trade Theories
oleh Rum Riyanto.S.
(Penulis adalah Widyaiswara Utama BDK Malang)
International Trade covers the whole process of economic transactions that cross the boundaries and set
in the mechanism of International Law. The trade processes involve individuals, groups and governments.
Each party can work together in the import-export process with certain policies. Yet, everything should be
set in collective agreements which must be adhered carefully. So, along with the age of development,
international trade has reach far beyond the classical trade models of centuries ago especially with the
progress of industry, technology, information, globalization, and political policies of each country. Also,
International Trade becomes a major boost in the foreign exchange needs.
The International Trade Theories
International Trade is the main object of academic research studies. Given that the relationship between
continents have evolved since many centuries ago, there are many studies that aim to analyze from a
historical, economic, cultural, religious, and economic perspectives. Thus, it is reasonable if there are
many developments of International Trade Theories. There are two Grand Theories that always apply to
analyze the International Trade. They are Classical and Modern Theory. Here are described some simple
explanations of how those theories could elaborate international trade relations in this contemporary
world. And it would be very useful in breaking down some of international trade phenomena with different
levels of analysis.
However, Classical Theory is still very useful as an analysis of the concept of international trade. Adam
Smith said that the production of economic resources and labor are the main force of the state revenue.
Therefore, a state should be able to increase the surplus of exports to other countries. Well, it would be
better if a country can minimize resources, but generates more profit. In Absolute Advantage Theory,
Adam explains that labor is a factor that affects the value of a product. It is more commonly known as the
Labor Theory of value.
Meanwhile, the other is the classical theory of Mercantilism. It is a theory that has been applied for
centuries ago. Indeed, this is also consistent with the theory that has been put forward by Adam Smits. It
shows that a country must increase exports as much as possible. At the same time, a state should be
able to restrict imports. After that, the surplus of exports would result in gold bullion, or precious metals,
especially gold and silver. Therefore, a state can reproduce a gold bar from expanding into different
areas. And that's what has caused the history of colonialism and imperialism to the world countries.
Mercantilism was the economic strategy followed by the European countries since the 16th century until
the 18th century. The colonies had been used as a source of cheap raw materials, as well as a market to
sold goods at high prices. Meanwhile, the Industrial Revolution that began in Britain since 1774 is the
most important factor in the spread of Capitalism through Colonialism and Imperialism. The Industrial
Revolution gave birth to the concept of capitalism as Adam Smith noted in The Wealth of Nations.
Capitalism is an economic system that regulates the production and distribution of goods/services with
freedom characteristic of private ownership and means of production. And that is what led to the birth of
Modern Theories that have been created by John Stuart Mill and David Ricardo. J.S. Mill states that a
country will produce and then export an item that has the greatest comparative advantage and import
goods owned by comparative disadvantage. This theory states that the value of an item is determined by
the amount of labor devoted to producing these goods. David Ricardo stated that there would be a value
exchange if the item has a value of usability. Thus something can be exchanged for goods when the
goods can be used. Furthermore, David Ricardo also made a distinction between goods that can be
made and or reproduced in accordance with the will of people; on the other hand, there are limited items.
As mentioned previously, the development of International Trade cannot be separated from the history of
Colonialism and Capitalism. So, it also causes different policies of the countries. Actually, International
Trade originated from the historical friendship which later turned into greed of occupation and domination.
Basically, there are some major characteristics of the underlying policies of every country in the
globalization and International Trade. It will be described in the explanations below.
There are three major organizations of the world; they are World Bank, IMF and WTO. These institutions
originally intended to stabilize the economy after World War II to build the welfare of its member countries.
However, since the 1980s, along with the dominance of Neo-liberalism, then Multilateralism has been
switched. Along with global capitalism, Multilateralism has put itself into a supra-state. Operating
agencies have to confront the country's national sovereignty, to intervene in domestic policy, and facilitate
the control of transnational in many countries.
It is a monopoly and concentration of capital and economic power to the corporations of the world. All the
mechanisms of global capitalism will benefit TNCs (Trans-National Corporation). Well, Globalism and
Multilateralism is a system and mechanism that serves to put the TNC on the main position. It is easier for
TNCs to expand into different countries by getting various facilities, such as low tariffs or even zero
percent, the ease to control and monopolize various business sectors in different countries, and even the
nature of public goods.
The Rules of International Markets
It is managed to free the private companies of any rules imposed by the government. Meanwhile, there
are opportunities profusely for international trade and investment. Meanwhile, there is a reduction in
government regulations which could minimize the benefit of private entrepreneurs. Obviously,
privatization is a key concept that marks the development of a free market system. The government could
sell the State-Owned Enterprises to private investors, including banks, strategic industries, highways, toll
roads, electricity, schools, hospitals, and even water.
International Trade Policy in Indonesia
The Indonesian government implements the revitalization of markets to improve the quality of trade and
international relations. On the other hand, it is also expected to be beneficial to the surrounding
community. In Act No. 36 of 2000, the government has set the Free Market Region and Port. This is a
separate area that is free from the imposition of import duties; value added tax, sales tax and excise tax
on luxury goods. It is a strategy to attract the attention of the company and foreign investment.
Meanwhile, there are many job opportunities to the surrounding community.
The Development of International Trade in Indonesia
Developments of International Trade in Indonesia are very dynamic, considering there are many historical
and political contexts. During the decade before the crisis, Indonesia's economy is growing very rapidly.
Increased per capita income doubled on 1990 to 1997. This development is supported by a stable
monetary policy, with low inflation and interest rate, growth rate controlled currency exchange rates, and
balance of State income and expenditure. But, over time, the economy is forced to grow on its own. Thus,
when the monetary pressures begin to impinge, the growth was crumbled.
Indonesia experienced a situation in which people find it difficult to get the allocation of resources.
Meanwhile, the confidences of foreign firms were so declining. Expected investment was not forthcoming,
and the corruption eradication agenda becomes very critical. Well, corruption is a phenomenon that was
never solved until this year. Unfortunately, governments tend to be less strict in cracking down on
corruptors with any covert reasons. Meanwhile, economic growth must be stabilized with the evaluation
and structuring of the governance structure, including a state that is free from any corrupt practices.
After the Reformation in 1998, the government has implemented different political and economic policies.
In the trade sector, some people have the ability to develop small and medium enterprises. Interestingly,
they also can adapt to advances in technology and information. Along with the popularity of the internet in
the middle class, there are many remarkable developments of business relationships. It has been proven
with the support of the government in the creative industries sector, especially the younger generation.
And the Ministry of Trade Republic of Indonesia also has released a lot more flexible and populist
The Role of Government in Promoting National Trade in Indonesia
So, the Indonesian Government came on stage to promote National Trade. National Trade is not just to
understand how society will establish trade relations in inter-island. More than that, there are many
opportunities that can be taken by the community to advance the industry and international trade. In fact,
the government will not interfere in any issue, except formal rules with reasonable restrictions. After more
than a decade Monetary Crisis, Indonesia is to fix them in the economic sector. However, the economic
prediction is as difficult to political prediction. It is a natural tendency of political life that is always
dominated by the clash of discourses. Meanwhile, the business community and the public are
increasingly crammed with various types of irregularities, such as corruption, collusion, smuggling, law
enforcement, and policies. Now, the International Trade is the best means to improve the quality of
products and services, while enhancing the dignity in the international world.
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